GST UPDATE ON WHETHER BEST JUDGMENT ASSESSMENT CAN BE MADE FOR DEFAULT IN FILING GSTR-3B? 155/2020-21

The concept of best judgment assessment is new to indirect taxation and appears to have been borrowed from direct taxes. Section 62(1) of the CGST Act, 2017 provides that where a registered person fails to furnish return under section 39 or section 45 even after service of a notice under section 46, the proper officer may proceed to assess the tax liability of the said person to the best of his judgment taking into account all the relevant material which is available. Recently, an interesting decision was passed by the Appellate authority in the case of M/s OMSAI PROFESSIONAL DETECTIVE & SECURITY SERVICES (P.) LTD. [2020 (121) TAXMANN.COM 192 (AA-GST-AP)] wherein it was held that best judgment assessment cannot be done in respect of non-filers of GSTR-3B. The reasoning adopted and the implications of this decision are the subject matter of consideration of the present update.

The appellant has been filing GSTR-1 returns by declaring outward taxable supplies under GST but have not filed GSTR-3B returns and has not paid the applicable taxes on its outward supplies as declared in the returns in GSTR-1. The assessing authority issued notices to the appellant for filing GSTR-3B but the appellant failed to file the same. Consequently, the assessing authority passed best judgment orders under section 62 of CGST Act, 2017 by enhancing the value of supplies declared in GSTR-1 by 50%. The appellant submitted that the reason for not filing GSTR-3B was the cash crunch faced by them. It was also submitted by the appellant that the conditions for invocation of provisions of section 62(1) were not satisfied as one of the conditions is the failure to furnish returns under section 39 of the CGST Act, 2017. It was submitted that as per section 39, returns specified are GSTR-1, GSTR-2 and GSTR-3 and GSTR-3B is not a return prescribed under section 39. Reliance was also placed on the decision rendered by Hon’ble Gujarat High Court in the case of M/S AAP & CO., CHARTERED ACCOUNTANTS VERSUS UNION OF INDIA [2019-TIOL-1422-HC-AHM-GST] wherein it was held that GSTR-3B is not a return under section 39.

The appellate authority held that enhancing the value by 50% on ad-hoc basis reflects the arbitrariness of the assessing authority in passing best judgment assessment. The appellate authority placed reliance on various decisions of Income Tax/Sales Tax wherein it was held that best judgment assessment is not a wild assessment. Best judgment order must be founded upon some rational basis, relevant material and logic and should not be based on presumptions and guess work. Any best judgment assessment must be supplemented by reason, because reason is the heart beat of any conclusion and fetches clarity in conclusion of any order, as such, without the reason best judgment orders becomes lifeless and amounts to denial of fundamental justice. The Hon’ble High Court also conceded that the GSTR-3B cannot be considered as a return under section 39 of CGST Act, 2017 by placing reliance on the decision rendered by Hon’ble Gujarat High Court in the case of M/S AAP & CO., CHARTERED ACCOUNTANTS VERSUS UNION OF INDIA [2019-TIOL-1422-HC-AHM-GST] . Therefore, the appeal was allowed by setting aside the best judgment order.

It is pertinent to mention here that although the government has amended Rule 61(5) with retrospective effect by way of insertion of Proviso clearly stating that where return in Form GSTR-3B is required to be furnished by a person, then such person shall not be required to furnish return in Form GSTR-3 vide Notification No. 49/2019-CT dated 09.10.2019 nullifying the effect of decision rendered by Hon’ble Gujarat High Court and this fact was discussed also. However, still the Hon’ble High Court granted relief to the assessee by declaring the best judgment assessment to be arbitrary. This decision is of immense importance to the assessees for restricting invocation of best judgment assessment for non-filing of GSTR-3B return.

This is solely for educational purpose.
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GST UPDATE ON WHETHER BEST JUDGMENT ASSESSMENT CAN BE MADE FOR DEFAULT IN FILING GSTR-3B? 155/2020-21

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